If you employ staff in the UK, you are legally required to pay them at least the applicable minimum wage. That rule applies whether you run a small online shop, work as a sole trader with your first employee, or manage a growing limited company. Getting it wrong can lead to back pay, financial penalties, and unwanted attention from HMRC.
Minimum wage compliance is not just about knowing one headline figure. The correct rate depends on the worker’s age and, in some cases, whether they are an apprentice. You also need to understand when rates increase each year, which payments count towards the legal minimum, and which common deductions can create problems.
This guide explains the current National Living Wage and National Minimum Wage rates, when they change, who is entitled to them, what qualifies as minimum wage pay, and what can happen if you underpay staff.
What Is the Minimum Wage?
The minimum wage is the lowest hourly rate you are legally allowed to pay a worker. It is not optional, and it applies regardless of the size of your business, whether you have one employee or one hundred.
In the UK, there are two related but distinct wage floors: the National Minimum Wage (NMW) and the National Living Wage (NLW). The NLW is the higher rate and applies to workers aged 21 and over. The NMW applies to workers under 21 and to apprentices, with rates that vary by age group.
Rates are set by the UK government each year, based on recommendations from the Low Pay Commission (LPC), an independent advisory body made up of employers, workers, and academics. According to GOV.UK guidance on the National Minimum Wage, the rates change on 1 April every year. Missing an update could mean underpaying your staff without realising it, which puts you at risk of penalties and back pay obligations.
UK Minimum Wage Rates for 2026
From 1 April 2026, new UK minimum wage rates came into force across all age bands. These updated figures matter for every employer, whether you run a small business with one member of staff or manage a larger team. Making sure your payroll reflects the correct rate is essential if you want to avoid underpayment, back pay, and HMRC penalties.
| Worker Category | Age Group | Rate from April 2025 | Rate from April 2026 |
| National Living Wage | 21 and over | £12.21/hr | £12.71/hr |
| National Minimum Wage | 18 to 20 | £10.00/hr | £10.85/hr |
| National Minimum Wage | 16 to 17 | £7.55/hr | £8.00/hr |
| Apprentice Rate | Under 19 OR first year | £7.55/hr | £8.00/hr |
The largest hourly rate remains the National Living Wage, which rose from £12.21 to £12.71. For a full-time employee working 35 hours a week, that works out at a minimum annual salary of £23,132.60. Workers aged 18 to 20 also saw a notable increase, while 16 to 17-year-olds and qualifying apprentices now have a minimum hourly rate of £8.00.
The apprentice rate only applies to workers who are under 19 or still in the first year of their apprenticeship. After that point, they must receive the standard minimum wage rate for their age group. That is an easy detail to miss, so it is worth checking both age and apprenticeship status before processing pay.
When Does the Minimum Wage Change?
Rates change on 1 April every year. The Low Pay Commission reviews wages annually and submits its recommendations to the government, which typically announces the confirmed rates in the autumn budget. That gives employers a few months to prepare before the April deadline.
As a business owner, you are responsible for ensuring your payroll reflects the new rates from the correct pay period. If your pay reference period straddles 1 April, for example, a weekly payroll running from Sunday to Saturday, the new rates apply from the first full pay period that begins on or after 1 April.
This is an easy thing to miss if you are managing payroll manually or if your software has not been updated. If you run your payroll on Xero, you will need to verify that the new rates are configured correctly before your first April pay run.
As a Xero Platinum Partner, eAccounts can help you set this up and keep it running accurately throughout the year. Our bookkeeping and VAT services are designed to take this kind of administrative burden off your plate entirely.
Who Is Entitled to the Minimum Wage?
Most workers in the UK are entitled to the minimum wage. This includes full-time employees, part-time employees, casual workers, zero-hours contract workers, agency workers, workers on probation, and homeworkers. The type of contract does not matter. What matters is whether the individual is classed as a worker under UK employment law.
Some categories of people are NOT entitled to the minimum wage.
These include:
- Self-employed people running their own business
- Company directors who are not classed as workers under a contract of employment
- Volunteers and voluntary workers
- Members of the armed forces
- Workers living in the employer’s family home who genuinely share in family life and tasks
It is also worth knowing that the minimum wage applies from the very first hour of a worker’s first day. There is no qualifying period, and there is no exemption for small businesses.
If you have taken on your first employee and you are still getting to grips with your employee obligations, our guide to the rules and requirements of being a sole trader covers what changes when you move from working alone to taking on staff.
What About Limited Company Directors?
If you are a director of a limited company and you pay yourself a salary, whether the minimum wage applies depends on whether you have a formal contract of employment with your company. Most directors do not have one, which means they are treated as officeholders rather than workers under employment law. In that case, the minimum wage does not apply to their director’s salary.
That said, if you are both a director and an employee of your own company, the minimum wage does apply to any employment income you receive under that contract. This is an area where the rules can feel confusing, and getting your pay structure wrong can create tax and compliance issues.
Many directors choose to pay themselves a modest salary, typically up to the National Insurance primary threshold, and draw the rest as dividends. This is a legitimate and tax-efficient strategy, but it needs to be set up correctly and reviewed each year as thresholds change.
What Counts Towards Minimum Wage Pay?
Not every payment made to a worker counts towards the minimum wage. This is where some employers get caught out, especially if they rely on bonuses, tips, or allowances to top up basic pay. To stay compliant, you need to know which parts of a worker’s pay can legally be included in the calculation.
Payments That Do Count
When checking minimum wage compliance, only certain types of pay can be included in the calculation. This is known as qualifying pay, and it does not cover every payment a worker receives.
Payments that usually count towards the minimum wage include:
- Basic salary or hourly pay
- Performance-related pay, such as commission
- Piece-rate pay for work paid by output or task completed
These are the main earnings HMRC looks at when assessing whether a worker has been paid the legal minimum. That is why it is important to focus on core pay rather than assume every item on a payslip can be counted.
Payments That Do Not Count
Not every payment made to a worker can be included when checking minimum wage compliance. Some payments may show up on the payroll or payslip, but they still sit outside the legal calculation. This is where employers can easily make mistakes, especially if they assume that extra payments help lift a worker’s pay above the minimum threshold.
Payments that do not count towards the minimum wage include:
- Tips, gratuities, and service charges
- Overtime pay or shift premiums above the normal hourly rate
- Allowances for uniforms, tools, travel, or other work expenses
- Benefits in kind, such as company cars, private health cover, or accommodation above the allowed offset
This distinction matters because these extras cannot be used to fix an underpaid basic rate. A worker’s core qualifying pay must meet the legal minimum on its own before any non-counting payments or perks are added.
Why This Matters for Employers
In simple terms, the worker’s core pay must meet the minimum wage on its own. You cannot rely on tips, expense payments, or added perks to close the gap. If the basic hourly rate falls short, you may still be underpaying the worker even if their total package looks higher overall.
Be Careful With Salary Sacrifice
Salary sacrifice arrangements also need careful handling. If deductions under one of these schemes reduce a worker’s hourly pay below the minimum wage, the arrangement will not comply with the rules, even if the worker agreed to it. That is why it is important to check the final hourly rate after any deductions are applied.
What Happens If You Pay Below the Minimum Wage?
HMRC takes minimum wage non-compliance seriously, and enforcement has been increasing. If you are found to have underpaid an employee, even accidentally, you must repay all arrears immediately. HMRC can also issue a financial penalty of up to 200% of the total underpaid amount, capped at £20,000 per worker.
On top of the financial penalty, HMRC operates a naming and shaming scheme for employers who fail to comply. Being publicly listed as a minimum wage offender is damaging for any business, but particularly for small businesses that rely on local reputation and word of mouth.
The scale of enforcement activity should not be underestimated. In 2024/25, HMRC opened over 5,200 new minimum wage cases and closed around 4,800. Of those closed, roughly 1,200 resulted in workers receiving back pay, and around 750 penalties were issued, totalling over £4 million. Three employers were also criminally prosecuted. Non-compliance is not treated as a minor administrative error.
The most common causes of underpayment include failing to update rates in April, making wage deductions that bring pay below the threshold, not paying workers for all time worked (such as pre-shift briefings or travel between sites), and misclassifying the age of a worker. A simple payroll audit each April can catch most of these issues before they become a problem.
Keeping Payroll Records
Under UK employment law, you are required to keep wage records that demonstrate you are paying the correct minimum wage. These records must be kept for at least three years. HMRC can request to see them at any time, and workers themselves have the legal right to request access to records relating to their own pay.
At a minimum, your records should include hours worked by each employee, the rates paid, and any deductions made. Payslips alone are not always sufficient, particularly for workers on variable hours or piece-rate arrangements.
If you use Xero to manage your bookkeeping and payroll, maintaining these records is straightforward. The software automatically logs pay runs, stores payslips, and makes it easy to produce records for any employee going back several years. If you are not yet using accounting software, now is a good time to consider it.
For additional guidance on your legal obligations as an employer, ACAS provides free and practical guidance on minimum wage entitlements, including advice on what to do if you discover you have underpaid a worker. Reviewing their guidance alongside professional accounting support gives you the best protection.
Make Sure You Are Paying the Right Amount
The minimum wage is one of the most straightforward legal obligations you have as an employer, but it is also one of the easiest to get wrong if payroll is not kept up to date. Missing an April rate change, miscalculating hours, or misapplying deductions can all lead to underpayment, and HMRC is actively looking for it.
At eAccounts, we support small businesses, sole traders, and limited company directors across the UK with payroll, bookkeeping, and tax compliance. As a Xero Platinum Partner with over 1,000 business clients and 5.0 Google reviews, we make sure your numbers are right so you can focus on running your business. Ready to hand over the hassle? Get a free quote today or book a free consultation with the eAccounts team.
FAQs
Does the minimum wage apply to part-time workers?
Yes. The minimum wage applies to all eligible workers regardless of how many hours they work each week. A worker on five hours a week is entitled to exactly the same hourly rate as a full-time employee of the same age.
What is the difference between the National Living Wage and the National Minimum Wage?
The National Living Wage (NLW) is the higher statutory rate and applies to workers aged 21 and over. The National Minimum Wage (NMW) is the term used for the lower rates that apply to workers under 21 and qualifying apprentices. Both are set by the government and legally enforceable. Neither should be confused with the voluntary Real Living Wage set by the Living Wage Foundation, which is a separate and higher rate that some employers choose to pay.
Do apprentices have to be paid the minimum wage?
Yes, but at the lower apprentice rate. From April 2026, that rate is £8.00 per hour. It applies to apprentices who are either under 19 or in the first year of their apprenticeship. Once an apprentice is 19 or older and has completed their first year, they are entitled to the NMW rate for their age group, which may be significantly higher.
Does commission count towards the minimum wage?
Yes, in most cases. Performance-related pay, including sales commission, counts towards the minimum wage calculation. However, the structure of your pay arrangement matters. In some types of work, the rules on how commission is averaged across a pay reference period can be complex. If your staff are paid largely through commission, it is worth verifying that your pay structure complies with the NMW regulations.
Can salary sacrifice arrangements reduce pay below the minimum wage?
No. Even if a worker agrees to a salary sacrifice arrangement, you cannot make deductions that bring their effective hourly rate below the minimum wage. This applies to all types of salary sacrifice, including pension contributions, cycle-to-work schemes, and childcare vouchers. If a deduction would take a worker below the threshold, it cannot legally be applied.
